THE WOODLANDS, Texas, Nov. 09, 2020 (GLOBE NEWSWIRE) -- Smart Sand, Inc. (NASDAQ: SND), a fully integrated frac sand supply and services company that is a low-cost producer of high quality Northern White frac sand and provider of proppant logistics and storage solutions through its in-basin transloading terminal and SmartSystems products and services, today announced results for the third quarter 2020.
Charles Young, Smart Sand’s Chief Executive Officer, stated “While these continue to be difficult times to operate in, Smart Sand continued to demonstrate its ability to manage successfully through volatile operating cycles for our industry. I want to thank all of our employees for their continued diligence and efforts to support the company through challenging times.”
“We continue to stay focused on enhancing our mine to wellsite solutions capabilities to provide sustainable and efficient sand supply and logistics services to our customers. The acquisition of Eagle Materials’ proppant business is a great example of our strategy to acquire strategically complementary assets at attractive valuations to enhance our capabilities to be a premier, long-term provider of northern white sand in the market place.”
Business Combination
On September 18, 2020, we acquired the Oil and Gas Proppants Segment of Eagle Materials Inc, which includes frac sand mines and related processing facilities in Utica, Illinois and New Auburn, Wisconsin, with approximately 3.5 million tons of total annual processing capacity, 1.6 million tons of which has access to the BNSF Class I rail line through the Peru, Illinois transload facility. The transaction is considered a bargain purchase whereby we purchased total net assets with a fair value of $41.9 million for total consideration of $2.1 million, resulting in a bargain purchase gain of $39.9 million, recorded in net income for the three months ended September 30, 2020. In connection with our acquisition we entered into a Liquidity Support Loan Agreement, whereby we may draw loans in an aggregate amount up to $5.0 million during the twelve month period ending September 18, 2021 and repay those amounts over the subsequent three years.
We believe this acquisition broadens our mine to wellsite capabilities by adding high quality sand mining and processing assets coupled with enhanced logistics options which provide direct access to an additional Class I rail line. We believe these additional mining and logistics resources help secure our ability to be the preferred provider of Northern White Sand in the proppants market. With this acquisition we believe we will be able to expand our footprint into new basins, gain access to new and enhanced logistics options, broaden our customer base and complement our mine to wellsite supply and logistics capabilities.
Third Quarter 2020 Results
Revenues were $23.4 million in the third quarter of 2020, compared to $26.1 million in the second quarter of 2020 and $65.7 million in the third quarter of 2019. Included in revenues were $6.8 million, $14.0 million, and $15.6 million of shortfall revenues for each respective period. Revenue in the third quarter of 2020 was negatively impacted by depressed oil prices driven by continued oversupply relative to the decreased demand due to the COVID-19 coronavirus pandemic.
Tons sold were approximately 309,000 in the third quarter of 2020, compared with approximately 208,000 tons in the second quarter of 2020 and 611,000 tons in the third quarter of 2019. Total volumes sold improved sequentially, though they continue to be negatively impacted by depressed oil prices driven by Organization of the Petroleum Exporting Countries (“OPEC”) oversupply and decreased demand due to the COVID-19 coronavirus pandemic.
Net income was $36.3 million, or $0.91 per basic and diluted share, for the third quarter of 2020, compared with net income of $4.6 million, or $0.12 per basic and diluted share, for the second quarter of 2020 and net income of $10.9 million, or $0.27 per basic and diluted share, for the third quarter of 2019. The bargain purchase gain was the primary driver for the increase in net income and amounts per share, partially offset by lower shortfall revenue and continued low total volumes sold.
Adjusted EBITDA was $6.1 million for the third quarter of 2020, compared with $15.6 million for the second quarter of 2020 and $28.8 million during the same period last year. The decrease in Adjusted EBITDA compared to the second quarter of 2020 was primarily due to lower shortfall revenue. The decrease in Adjusted EBITDA compared to the third quarter of 2019 was due to both lower shortfall revenue and lower total volumes sold due to depressed oil prices and decreased demand.
Contribution margin was $10.4 million, or $33.52 per ton sold, for the third quarter of 2020 compared to $19.3 million, or $92.62 per ton sold, for the second quarter of 2020 and $33.7 million, or $55.13 per ton sold, for the third quarter of 2019. The decrease in contribution margin compared to the second quarter 2020 was primarily due to both lower shortfall revenue partially offset by higher total volumes sold. Lower overall contribution margin compared to the same period last year was primarily due to lower total volumes sold in the current period due to depressed oil prices and decreased demand and lower shortfall revenue.
Capital Expenditures
Our primary sources of liquidity are cash on hand, cash flow generated from operations and available borrowings under the ABL Credit Facility and the Acquisition Liquidity Support Facility. As of September 30, 2020, cash on hand was $11.0 million and we had $9.6 million in undrawn availability on our ABL Credit Facility, with no borrowing outstanding under our ABL Credit Facility. For the nine months ended September 30, 2020, we spent approximately $7.4 million on capital expenditures. We estimate that full year 2020 capital expenditures will be less than $10.0 million.
Market Update
We generally expect the price of frac sand to correlate with the level of drilling and completions activity for oil and natural gas and we generally expect the level of drilling and completions activity to correlate with long-term trends in commodity prices. Earlier in 2020, oil prices declined to all-time lows as a result of decreased demand for oil from the COVID-19 coronavirus pandemic, as well as an increase in global oil supply driven by disagreements with respect to oil pricing between Russia and members of OPEC, particularly Saudi Arabia. The COVID-19 coronavirus pandemic has caused a global decrease in all means of travel, the closure of borders between countries and a general slowing of economic activity worldwide, which has decreased the demand for oil. In early March, discussions between Russia and Saudi Arabia deteriorated and the countries ended a three-year supply level agreement, which resulted in each country increasing its oil production. Subsequently, Russia and OPEC agreed to certain production cuts to mitigate the decline in the price of oil; however, such cuts may not be sufficient to stabilize the oil market if the decline in demand due to the COVID-19 coronavirus pandemic continues. While oil and natural gas prices have improved from their recent lows, they are expected to continue to be at depressed levels as a result of the increase of near-term supply and the decrease in overall demand caused by these events, and we cannot predict when prices will improve or stabilize.
In response to these market conditions, we implemented several cost cutting measures ealier in 2020, including reducing our capital expenditure budget, primarily as a reduction to our SmartSystems manufacturing plans. Additionally, we put in place several cost-cutting measures, including headcount reductions at our Oakdale and Saskatoon, Canada operating facilities, salary reductions and suspension of certain variable cash compensation programs for all employees, and reduced compensation for board members. We have also taken steps to limit cash outflows in the near-term by negotiating for deferred payments on certain of our operating leases, debt and minimum royalty payments. We have put in place multiple initiatives to protect the health and well-being of our workforce, including work-from-home arrangements for all employees that are able to do so and implementing social distancing requirements as prescribed by the federal, state and local government authorities.
About Smart Sand
We are a fully integrated frac sand supply and services company, offering complete mine to wellsite proppant logistics, storage and management solutions to our customers. We produce low-cost, high quality Northern White frac sand and offer proppant logistics, storage and management solutions to our customers through our in-basin transloading terminal and our SmartSystems™ wellsite proppant storage capabilities. We provide our products and services primarily to oil and natural gas exploration and production companies and oilfield service companies. We own and operate premium frac sand mines and related processing facilities in Wisconsin and Illinois, which have access to three Class I rail lines, allowing us to deliver products substantially anywhere in the United States and Canada. For more information, please visit www.smartsand.com.
